In an agreement with the Securities and Exchange Commission (SEC), Morgan Stanley will pay a $500,000 penalty to settle charges that it misled customers in its Nashville office about various money management firms recommended to clients and from which Morgan Stanley later profited via large commissions.
Contrary to its disclosures and corporate policies, Morgan Stanley recommended some money managers who were not approved for participation in the firm’s advisory programs and therefore had not been subject to the firm’s due diligence review.
The SEC also charged William Keith Phillips, a former Morgan Stanley investment advisor in Nashville, of steering investors to the unapproved money managers so that he could receive financial kickbacks. The SEC says Phillips’ use of unapproved money managers earned Morgan Stanley at least $3.3 million in extra commissions.
The SEC’s case with Phillips is still pending.
This isn’t the first time complaints have been lodged against Phillips. As reported July 21 in The Tennessean, Phillips apparently has a lengthy history of previous misconduct accusations, including those from the Chattanooga Pension Fund, the Nashville Electric Service and Metro Nashville Pension Plan. In 2004, the Chattanooga Pension Fund accused him of costing the fund $20 million in losses, undisclosed commissions and fees.
Ultimately, UBS Financial Services, which acquired Phillips’ employer PaineWebber, paid $675,000 to settle the case in 2006, according to the Financial Industry Regulatory Authority (FINRA), according to the article. A much larger payout was made by the Swiss-based bank in 2002 after Metro Nashville complained about the way in which Phillips handled its pension.
UBS paid more than $10 million to settle those issues. UBS also settled with the Nashville Electric Service, agreeing to pay $440,000 for similar accusations levied against Phillips.